* Fed Chair Powell's two-day testimony starts Wednesday
* Gold consolidating below $1,400 -analyst
* Speculators raise net longs in gold in week to July 2
* SPDR Gold holdings fall 0.15% on Monday (New throughout, updates prices, market activity and comments)
July 9 (Reuters) - Gold edged up on Tuesday after falling to a one-week low earlier in the session, as investors used the drop in prices to buy the yellow metal with bullion holding a key technical level.
The focus was on the U.S. Federal Reserve Chair Jerome Powell's two days of testimony on monetary policy before the U.S. Congress starting on Wednesday.
Spot gold rose 0.1% to $1,397.20 per ounce at 01:04 p.m. EDT (1705 GMT). Earlier, prices hit the session trough of $1,386.11, the lowest since July 2.
U.S. gold futures for August delivery held steady at $1,399.50 per ounce.
"The resurgence in U.S. dollar reaching a three-week high moved gold at lower prices earlier in the session, following which we are seeing a little bit of bargain buying which has kept the market afloat," said Alex Turro, market strategist at RJO Futures.
Earlier in the session the U.S. dollar rallied on the likelihood of a modest quarter-point interest rate cut by the Federal Reserve this month.
Expectations of a 50 basis point rate cut have fallen to 5.9% from 25% last week, propelling the dollar index to a three-week high.
Chances of a 25 basis point cut were at 98%.
The dollar was also supported by news the United States and China were set to relaunch trade talks this week.
"The key technical support around the $1,385.00 area has held, encouraging some chart-based buying," said Jim Wyckoff, senior analyst with Kitco Metals.
Despite gold breaking below the key $1,400 level, the outlook for gold still remained positive, with analysts citing support from Middle East tensions, Sino-U.S. trade war and buying by central banks.
Top gold consumer China's reserves jumped to $87.27 billion from $79.83 billion at end-May.
"If Powell confirms a dovish view, we will see some renewed dollar weakness and support for gold; bond yields will also find some support," said Saxo Bank analyst Ole Hansen. Otherwise, he said, gold "could see some additional long liquidation."
On the technical front, gold is consolidating around $1,400, plus or minus $20 per ounce, said Samson Li, a Hong Kong-based precious metals analyst at Refinitiv GFMS.
Hedge funds and money managers raised their bullish stance in COMEX gold in the week to July 2.
Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.15% to 795.80 tonnes on Monday.
Among other precious metals, silver rose 0.4% to $15.09 per ounce.
Palladium was down 1% at $1,546.5, and platinum fell 0.5% to $809.75 per ounce. (Reporting by Diptendu Lahiri and Arpan Varghese in Bengaluru; Editing by David Gregorio and Steve Orlofsky)